PacWest Bancorp Announces Results For The Third Quarter 2017

Core Deposits Increase of $314 Million and Represent 81% of Total Deposits

Tax Equivalent Net Interest Margin of 5.08%

All Approvals Received for CUB Acquisition; Expected to Close October 20

LOS ANGELES, Oct. 17, 2017 (GLOBE NEWSWIRE) -- PacWest Bancorp (Nasdaq:PACW) today announced net earnings for the third quarter of 2017 of $101.5 million, or $0.84 per diluted share, compared to net earnings for the second quarter of 2017 of $93.6 million, or $0.77 per diluted share. The increase in net earnings from the prior quarter was primarily due to lower income tax expense partially offset by lower noninterest income and a higher provision for credit losses. Income tax expense for the third quarter was lower due to a $13.6 million reversal of a valuation allowance related to tax credits which, based on our latest analysis, are more likely than not to be utilized before they expire.

Matt Wagner, President and CEO, commented, “We delivered solid performance in the third quarter and continue to demonstrate our earning power. Our strong third quarter results produced a return on assets of 1.82% and a return on tangible equity of 16.85%.”

Mr. Wagner continued, “All required approvals have been received and we look forward to closing the CU Bancorp acquisition this week. We are excited about the exceptional core deposit franchise and opportunities for increased operating efficiencies provided by this transaction.”

FINANCIAL HIGHLIGHTS

At or For the Three Months Ended

At or For the Nine Months Ended

September 30,

June 30,

September 30,

Financial Highlights

2017

2017

Change

2017

2016

Change

(Dollars in thousands, except per share data)

Net earnings

$

101,466

$

93,647

$

7,819

$

273,781

$

266,519

$

7,262

Diluted earnings per share

$

0.84

$

0.77

$

0.07

$

2.26

$

2.19

$

0.07

Return on average assets

1.82

%

1.71

%

0.11

1.67

%

1.69

%

(0.02

)

Return on average

tangible equity (1)

16.85

%

16.06

%

0.79

15.63

%

15.74

%

(0.11

)

Net interest margin

(tax equivalent)

5.08

%

5.21

%

(0.13

)

5.15

%

5.37

%

(0.22

)

Efficiency ratio

40.4

%

40.3

%

0.1

40.7

%

39.7

%

1.0

Total assets

$

22,242,932

$

22,246,877

$

(3,945

)

$

22,242,932

$

21,315,291

$

927,641

Loans and leases held

for investment, net of

deferred fees

$

15,690,517

$

15,543,457

$

147,060

$

15,690,517

$

14,742,846

$

947,671

Noninterest-bearing

deposits

$

6,911,874

$

6,701,039

$

210,835

$

6,911,874

$

6,521,946

$

389,928

Core deposits

$

13,531,300

$

13,217,574

$

313,726

$

13,531,300

$

12,010,639

$

1,520,661

Total deposits

$

16,773,245

$

16,874,977

$

(101,732

)

$

16,773,245

$

15,645,668

$

1,127,577

Noninterest-bearing

deposits as percentage

of total deposits

41

%

40

%

1

41

%

42

%

(1

)

Core deposits as

percentage of total

deposits

81

%

78

%

3

81

%

77

%

4

Equity to assets ratio

20.73

%

20.50

%

0.23

20.73

%

21.31

%

(0.58

)

Tangible common equity

ratio (1)

12.02

%

11.75

%

0.27

12.02

%

12.19

%

(0.17

)

Book value per share

$

37.96

$

37.55

$

0.41

$

37.96

$

37.29

$

0.67

Tangible book value per

share (1)

$

19.84

$

19.40

$

0.44

$

19.84

$

19.12

$

0.72

(1) Non-GAAP measure.

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income decreased by $0.8 million to $241.7 million for the third quarter of 2017 compared to $242.5 million for the second quarter of 2017 due mainly to interest expense growth exceeding interest income growth for the quarter. The loan and lease yield was 6.01% for the third quarter of 2017 compared to 6.07% for the second quarter of 2017. The decrease in the loan and lease yield was principally due to the decrease in discount accretion on acquired loans and lower loan fee income. Total discount accretion on acquired loans was $5.5 million in the third quarter of 2017 compared to $7.5 million in the second quarter of 2017.

The tax equivalent NIM was 5.08% for the third quarter of 2017 compared to 5.21% for the second quarter of 2017. The decrease in the NIM was mostly due to the decrease in discount accretion on acquired loans and loan fee income and a higher cost of average interest-bearing liabilities. Total discount accretion on acquired loans contributed 11 basis points to the NIM for the third quarter of 2017 and 16 basis points for the second quarter of 2017.

The cost of average total deposits increased to 0.31% for the third quarter of 2017 from 0.25% for the second quarter of 2017 due to higher rates paid for non-core deposits and select large-balance deposit customers.

Noninterest Income

Noninterest income decreased by $3.9 million to $31.4 million for the third quarter of 2017 compared to $35.3 million for the second quarter of 2017 due mainly to a $3.3 million decrease in leased equipment income due to lower gains on early lease terminations and a $1.9 million decrease in other income as the second quarter included a BOLI death benefit and higher recoveries from third parties, offset by an increase in gain on sale of loans and leases of $2.2 million.

The following table presents details of noninterest income for the periods indicated:

Three Months Ended

September 30,

June 30,

Increase

Noninterest Income

2017

2017

(Decrease)

(In thousands)

Service charges on deposit accounts

$

3,465

$

3,510

$

(45

)

Other commissions and fees

9,944

10,583

(639

)

Leased equipment income

8,332

11,635

(3,303

)

Gain on sale of loans and leases

2,848

649

2,199

Gain on sale of securities

1,236

1,651

(415

)

Other income:

Dividends and realized gains on equity investments

1,845

1,587

258

Warrant income

731

815

(84

)

Other

2,981

4,852

(1,871

)

Total noninterest income

$

31,382

$

35,282

$

(3,900

)

Noninterest Expense

Noninterest expense increased by $0.8 million to $118.5 million for the third quarter of 2017 compared to $117.7 million for the second quarter of 2017 due mostly to a $2.3 million increase in foreclosed assets expense offset by decreases in several expense categories. The increase in foreclosed assets expense was due to a write-down of $2.1 million on foreclosed property.

The following table presents details of noninterest expense for the periods indicated:

Three Months Ended

September 30,

June 30,

Increase

Noninterest Expense

2017

2017

(Decrease)

(In thousands)

Compensation

$

64,413

$

65,288

$

(875

)

Occupancy

12,729

11,811

918

Data processing

6,459

6,337

122

Other professional services

4,213

3,976

237

Insurance and assessments

4,702

4,856

(154

)

Intangible asset amortization

3,049

3,065

(16

)

Leased equipment depreciation

4,862

5,232

(370

)

Foreclosed assets expense (income), net

2,191

(157

)

2,348

Acquisition, integration and reorganization costs

1,450

1,700

(250

)

Loan expense

3,421

3,884

(463

)

Other

11,053

11,715

(662

)

Total noninterest expense

$

118,542

$

117,707

$

835

Income Taxes

The overall effective income tax rate was 27.2% for the third quarter of 2017 and 37.0% for the second quarter of 2017. The effective rate for the third quarter was lower due to the $13.6 million reversal of a valuation allowance related to tax credits which, based on our latest analysis, are more likely than not to be utilized before they expire. The estimated effective tax rate for the full year 2017 is approximately 35%.

BALANCE SHEET HIGHLIGHTS

Loans and Leases

Total loans and leases held for investment, net of deferred fees, increased by $147.1 million in the third quarter to $15.7 billion at September 30, 2017. The net increase was driven mainly by third quarter new production of $1.0 billion and disbursements of $722.8 million, offset partially by payoffs of $903.4 million and paydowns of $637.7 million. The following table presents a roll forward of loans and leases held for investment, net of deferred fees, for the periods indicated: